Recently I was watching CNBC and I heard a comment from Art Cashin on the floor of the NYSE which rang true for every successful trader. Art said, "I'm not always right, but I'm always consistent." Picking direction day after day can be one of the hardest things to do. The truth is no one knows what the market is going to do. Technical analysis can help, but once you think the market can't go down, it goes down, once you think it can't go up, it goes up! So how do you win the battle of consistency in an inconsistent market? Let's find out . . .
Iron Condor traders will be a good group to discuss for this example. Last year carried some of the most volatile markets an Iron Condor trader will ever experience. I know several traders who started the year making great money . . . then came September. Forget about the money people lost in September, more traders were destroyed psychological than what they actually lost in the market. So what happened the next month in October? People stopped trading the strategy and missed out on perhaps some of the better gains they would have experienced trading Iron Condors. Repeat after Art Cashin, "I'm not always right, but I'm always consistent."
So how do you create a consistent plan trading Iron Condors? The thinkorswim® software makes this really easy. 30 - 45 days before expiration on a liquid product index like the SPY, QQQQ, DIA, or IWM, sell an option with a probability of expiring at or near 30%. Probability of Expiring on the thinkorswim software tells you the probability of that strike expiring 1 penny in the money on expiration. When selling Iron Condors you don't want the option to expire in the money. With a 30% probability of expiring in the money, there is a 70% probability of the option expiring out of the money which is perfect for any Iron Condor. Sell the 30% probability of expiring on both the calls and puts, buy some insurance further out of the money and you have your Iron Condor. The below figure shows you what to look for on the thinkorswim software.

These are the type of consistent rules that a trader must come up with that allows them to be consistent no matter what the market is doing. It's also important to remember risk management when trading anything. Part of creating consistency is only losing what your comfortable losing. Keep things small and simple and that will put you on the path that Art Cashin and every other successful trader strives for. Consistency.
Trade well.
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